In-Memory Analytics For Retail: The Value of Real-Time Actionable Insight

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2012 International Institute for Analytics. Proprietary to ARC subscribers. IIA research is intended for IIA members only and should not be distributed
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Analytics Research Council
Retail (RARC)

Research Brief #11
In-Memory Analytics for Retail: The Value
of Real-time Actionable Insight

March 29, 2012

Authored by:
Shivani Govil, Vice President, SAP
Russ Hill Jr., Senior Director Retail, CP, Wholesale Distribution Industry Marketing
SAP Business Analytics

In-Memory Analytics for Retail March 29, 2012 p. 2
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Introduction
The past few years have been extremely difficult for retailers. The economic crisis and
the threat of an uncertain recovery have kept consumer confidence and spending under
perpetual surveillance. The pressure to maintain and improve on already tight margins
keeps increasing. Retailers compete to retain mindshare of the consumer; customer
loyalty is difficult to maintain because customers have a plethora of choices ranging
from the traditional brick and mortar formats (upscale/niche boutiques on the high end,
department chains, discounters/wholesalers on the low end) to the online stores (online
sites for stores, auction houses, aggregators, price comparison engines, etc.) In the
past, retailers maintained a single department, offering sales and support via a single
mode of customer interaction which was the physical store. Today, this has expanded to
include multiple ways of selling to the customer. Communication channels with
customers have grown from printed mail & catalogues to now also include the internet,
social media, mobile phones, and interactive TV bringing new methods for offering
products, promotions, services and information exchange. In addition, many retailers
are cross-pollinating with product assortments from other formats in an attempt to
enhance and extend their shopping experience. Competing in local market geographies
has expanded to national/global competition.

As a result, retailers have to constantly stay on top of their business, competition and
customer requirements to remain relevant. They depend heavily on technology in order
to do so, and recognize the importance of precise, accurate item and customer level
detail data to help drive decision making for both internal operations and customer
engagement. Retailers are leveraging technology to understand their customers better
and serve more personalized products & services. IT is being seen as a critical
differentiator at the board levels within retail companies, with data being the new raw
material.
Data Issues for Retailers

There are three key challenges for retailers associated with data. First, there are
massively large volumes of data being generated and collected, and this is growing
exponentially. Consider an average clothier like Gymboree. Lets say that at any given
time, they have products in 10 different styles and track 8 to 12 different sizes in dozens
of current trendy colors. As you add up the data that needs to be stored across these
attributes, including the product name, description, ID number, price, discounts, etc
the volume quickly reaches into terabytes. This data volume is growing faster than

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before due to the proliferation of social media and mobile phones. According to an IDC
study, the worlds information is more than doubling every two years and forecasts that
1.8 ZB of data will be created and replicated, close to 10 times the data stored in 2006
1
.
New technologies have not only compounded the data, it is forcing retailers to think
differently about how to use this data to turn it into actionable insight that is critical for
their success. For example, how can they use data to drive new approaches to
promotions, collapse the trading lifecycle with vendors and suppliers, and collaborate
more effectively with the customer directly (e.g. gamification). The options are plentiful -
but require harnessing the data to act upon and change the business model. McKinsey
predicts that there is a potential to increase a retailers operating margins by 60% with
the use of Big Data
2
.

Second, while the volume of data has increased, so has the complexity of the data. The
data that retailers need to understand in their decision making tends to live in both
structured and unstructured formats. There is data that is stored in the retailers
enterprise systems such as their financial systems, POS systems, supply chain
systems, merchandise planning, product assortment planning, customer relationship
management systems, etc. And there is unstructured data coming in from the internet
(online shopping, web-site data, customer sentiment expressed in social media/ blogs),
customer care data (voice/chat/emails), data from mobile interactions (mobile shopping,
comparison on mobile phones), and surveillance data (footfalls, video, etc). For
example, there are over 90M tweets sent per day on Twitter, Facebook users log in
more than 700B minutes per month, and there are more than 5.3B mobile subscribers
globally, representing about 77% of the worlds population .
There is a wealth of unsolicited customer experience data that retailers can use to
understand not only the customers experience with themselves, but also the
competition. Retailers have to be able to collect, process, and analyze this data
effectively to be able to connect with customers at a more intimate level, as well as
deliver meaningful insights for use in their business. In a recent survey of 100 retailers
in the U.K., more than half said they had more data than they could use and some 88%
of companies said they found it difficult to turn the customer data they got into useful
insight that could help with the task of personalizing the information
4
.

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A third dimension that complicates the situation for retailers is that the speed of
business has increased dramatically. What happens in one part of the world can affect
the fortunes of a company almost overnight. Information today travels at a velocity
faster than ever seen before in business, oftentimes swaying the fortunes of a company
even before they have time to react. The speed at which business is moving is clearly
illustrated by the rise and fall in the fortunes of companies. On September 22, 2007,
Topps Meat Company of Elizabeth, NJ was one of the largest U.S. manufacturers of
frozen hamburger meat. But on September 23, Topps was hit by a massive recall of
beef patties contaminated with the bacterium E. coli, a cause of food poisoning. Ill-

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equipped to manage the recall, Topps collapsed upon itself, and within less than a
week, it closed its doors forever. Even the retailers selling Topps products had to make
arrangements to quickly address the situation to minimize the impact and maintain
brand stability.
With the advent of the internet and social media, companies have even less control over
their brand, reputation, and image, and the speed of business has become even faster.
The massive amount of social sentiment makes the need to understand and act upon
the data even more evident, in order to address:
The new voice of the customer
Increasing competition vying for customer attention
Rising customer service expectations
More experienced public buyer
Quicker market reaction, shorter product development timelines
Growth of mobile and location-based services particularly among younger
demographic
Unfortunately, in many instances, the speed at which companies access and analyze
data, or even when the data becomes available, can often be weeks if not months too
late to be able to drive any material actions. Getting insight into data requires mapping
data queries/reports to existing enterprise data sources, such as ERP or Supply chain
which are fairly complex and make it difficult to optimize performance. Data upload and
data processing are typically extremely time consuming and resource intensive. This
problem becomes quite apparent when data needs to be refreshed for any reason or if
there is a change in business requirement and additional data processing is required.
Recent advances in technology have opened up the range of possibilities around when
data can be accessed and how it can be used. The price of memory has fallen
significantly in 1980, a terabyte of disk storage used to cost $14M - today it is at $30
and dropping
3
. What this means is that the amount of data that can be stored has grown
dramatically, making it easier to analyze volumes of data that were not possible before.
As technologies such as Hadoop and cheaper disks have solved the problem of scale,
the focus has shifted towards speed.
What is In-Memory Analytics
In-memory database is a technology that moves data from disk to storing in cache/local
memory. As a result, the process of doing aggregation or building of indexes is no

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longer required. Data is combined from different tables at high speed and stored in a
columnar format so that it can be sliced and diced in real time. This allows large
volumes of data to be stored for real-time retrieving, and analyzed in rapid timeframes
to drive immediate actions. Many analytical functions that relied on traditional relational
databases are shifting towards in-memory, which makes it faster to analyze and query
the data to generate results.
What this means in business terms is that even complex analysis on vast volumes of
data can be done in very short time frames reducing process times from hours to
seconds and making information available immediately. As a result, retailers can look
at analysis results in real-time, and drive their business decisions based on current
data. These advances open up the possibilities to imagining a whole new way of doing
business than was possible before.

Applications of In-Memory Technology in Retail
Greater ROI for retailers comes from increasing top line performance through increased
sales, or reducing bottom line costs by improving operational performance. In-memory
technology impacts the top line and bottom line on a retailers balance sheet.

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(A) Top-Line Impact
Customer Targeting: Real time analytics can help increase sales through improved
marketing, better promotion offers, and increased customer satisfaction. When a
customer is in a store, the retailer can increase sales by triangulating several pieces
of information (what the customer is looking to purchase, what items are in stock,
and the customers past purchase history) to make a new offer to the customer that
will entice them to purchase more. This requires that the store have access to critical
pieces of data (inventory data, POS data, and customer profile), and that the store is
able to connect and analyze them in real-time to create a timely and relevant offer. If
a customer is in a shoe store looking for the right pair of shoes, and the retailer does
not have the style/size the customer likes available, imagine if the store could match
the styles of shoe will match their tastes (based on a combination of information
about from the shoe in their hand and in their customer profile); analyze the
inventory in stock in the shop, and then come back to the customer with
recommendations for alternative shoes that will fit their style, budget and tastes (and
even give a promotion on price!). Today many of these processes involve human

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judgment and a lot of time - in memory analytics improves this scenario by allowing
data to be processed quickly.
Some retailers are going one step further to take advantage of customers mobile
phones. Using the location services on the phone, retailers identify when a regular
customer walks into the store. Once the customer is in the store, they want to map
the customer preferences (based on their loyalty cards) with in stock inventory, and
offer the customer personalized promotions tailored to their needs.
Pricing Promotions: Online retailers who track web traffic and purchases in real time
have a pulse on their stock and inventory. They can modify promotions to customers
offering incentives on items that are high in inventory, while removing the focus on
items that are running low. When visiting a retailer like Dell, the prices and offers one
sees in the morning may be different from the afternoon, based on inventory and
sales movement.
Merchandise / Assortment Planning: In-memory technology also provides real-time
insights on purchase patterns of shoppers by location (down to the store level) and
time (time of day, time of week, etc.). Correlating this with demographic and other
data can enable retailers to dynamically optimize product assortment and delivery.
Online Payments & Fraud: Another example of the need for real time analytics is in
the case of online payments. As customers buy from an online retailer, the need for
speed in terms of processing transactions and analyzing for fraud is critical. Some
online payment companies set a limit of 300 milliseconds any activity that takes
longer than that is not implemented. When someone makes a transaction, the online
payment processor has to triangulate several sources of data (customer information,
profile/history, collection records, and now social network data) to assess the
reputation of the buyer and the seller, before authorizing a transaction. All this,
along with the usual overhead of processing a transaction (policy/legal/compliance
checks, determining the right network/scheme to route the transaction through)
needs to be done in 300 milliseconds or less. A fraudulent customer sale results in
lost revenues for the retailer and/or the payment processor and hence the
importance of the accuracy of analysis and the speed of processing. In memory
technology makes it possible to do these real time analytics in the speed required.
(B) Bottom-Line Impact
In addition to the topline, real time analytics can also improve bottom line performance,
by equipping retailers to run internal operations more effectively.

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Inventory Management: In memory database technology enables retailers to
integrate their disparate sales, inventory and promotion systems, in order to provide
the business with a consolidated and current insight into customer demand. Tracking
and monitoring inventory in real-time allows retailers to quickly balance supply and
demand based on real-time data, resulting in a reduction of out of stock items and
consequently lost sales. Real time analysis of promotions enables retailers to
understand the immediate ROI and impact of promotions. Tying this back to
inventory management, retailers can optimize inventory based on the best-selling
items/promotions. Managers can track store performance to understand what items
are selling in which stores, and move goods quickly to keep up with customer
demands. As omni-channel retail strategies create more complexity, the ability to
understand promotional impact and align inventory requirements with other channels
becomes more valuable by reducing the cost of capital employed on inventory, and
increasing customer satisfaction.
Production Planning: Most retailers plan out their production processes in advance.
However, a real-time production planning system can greatly improve costs. Take
the example of a large NA retailer that runs a combination of gas stations and
convenience stores. In the convenience store, the retailer might sell pre-made
coffee, hot sandwiches, and snacks. Assuming they have 20+ different SKUs for
hot concessions in 3 different sizes, the GM of the store needs to determine how
much quantity of each item to make. Making too much of an item results in waste
while too little results in lost sales. Real-time insight into the current consumption
allows the GM to maximize revenues and minimize waste.
Supply Chain Management: In the same example, lets say each product had 3-4
different ingredients, which have to be ordered from external suppliers. In todays
world, the retailer has to order the ingredients in advance, and hope that the demand
will match the supply they have planned. However, if they can equip their supply
chain to operate in real-time, they can assess demand and maintain a reduced
amount of inventory on hand, and replenish their inventory via a responsive supply
chain network, as appropriate. For stores that sell perishable items, this ability can
have a big impact on margins, by significantly reducing spoilage and wastes that
would have been thrown away. To really achieve the full benefit of such an
approach, the entire supply chain would need to be re-architected to be able to
respond in real-time. However the benefits and cost savings of such an approach
could be huge.
Labor Costs: Real-time intelligence can also be used to optimize labor costs. Store
performance can be monitored and shift duties can be arranged up or down based
on the demand that is seen in the stores. Innovative retailers can negotiate stand-by

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labor retained at a lower cost. If traffic is seen to increase in the stores, they can call
the stand-by teams in to work so that they can minimize the checkout lines and
enhance the shopping experience, thus leading to a more satisfied customer. Should
customer traffic be less than anticipated, the labor pool can be assessed and
allocated either to other tasks or cancelled. A key aspect is the capability to profile
this historical data for anticipating future labor requirements.
Conclusion
For those retailers looking to convert their data insights into strategic advantage, the
ability to tap into real-time insights is a significant competitive differentiator. In-memory
technology can enable retailers to process large volumes of both structured and
unstructured data in sub second timeframes, without having to create and build pre-
structured data warehouses. There are numerous advantages to real-time analytics that
impact both the top line performance and the bottom line costs of a company. Some of
the benefits mentioned here are just the tip of the iceberg. Looking ahead, the ability to
re-architect business processes so that every step is connected in a real-time manner
represents a huge opportunity area for companies to improve and drive further margins,
allowing them to move to a rapid, iterative sense and respond cycle.
About the Authors:
Shivani Govil: At SAP, Shivani Govil has been leading and defining SAPs approach to build
out a platform ecosystem. Prior to that, Shivani was responsible for driving product strategy,
ecosystem strategy and overall business strategy in Analytics. She helped define the company
approach for analytic applications, including the product definition, target markets and
pricing/commercialization structure. Previously, Shivani was with SAPs Corporate Strategy
Group, where she was involved in identifying new revenue opportunities for the company.
Before that, Shivani worked in Corporate Development at Agile software and played an
instrumental role in the acquisition of Agile by Oracle. She also completed two acquisitions for
the company and managed key alliances with MSFT, IBM, and others.
Russ Hill Jr. Russ manages SAP BusinessObjects Global Industry Marketing for Retail,
Consumer product, and Wholesale distribution. His focus is the strategic vision and coordination
of the vertical portfolio of analytical solutions that support a globally extended team of sales and
marketing managers in each of these segments. With over 30 years in the retail and data
warehousing industry, Russ has a wide variety of marketing experiences and expertise. Having
begun his career with JC Penney, he soon advanced to a position with the Fleming Companies
where he was responsible for the procurement, marketing, sales, and distribution of grocery,
health and beauty care, general merchandise, and specialty foods. Next, at NCR Teradata,
Russ effectively led a cross-functional team of marketing, sales, training resources, and

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strategic alliance partners in the creation of the retail portfolio of analytical and operational
applications program.

References:
1
IDC Digital Universe Study, 2011 (sponsored by EMC)

2
McKinsey Global Institute, Big data: The next frontier for innovation, competition, and productivity,
June 2011
3
Building data startups: Fast, big and focused, Michael Driscoll, August 2011
4
2011 Retail Report by Loudhouse (Commissioned by SAP)
5
2011 Aberdeen Group report: In-memory Computing: Lifting the Burden of Big Data

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